Bitcoin, blockchain and chocolate

12/05/2016

Bitcoin. It’s the cryptocurrency that hit the scene in 2009 as a new kind of digital money that enables transactions to take place instantaneously without a middle man, like a bank, overseeing the transfer.

Well beyond the start-up phase, bitcoin and the blockchain technology behind it is gaining popularity and raising serious questions about how a decentralised currency with no owner can be trusted as a form of money in a highly regulated Australian economy.

Asher Tan CEO and co-founder of CoinJar - a bitcoin app for everyday purchases and around-the-world money transfers and currency exchanges with no fees said governance is an increasingly important issue for cryptocurrencies at Melbourne Business School’s Bitcoin and Beyond event during Melbourne Knowledge Week.

“It's interesting to see people trying to manage something like bitcoin, which wasn't designed to be managed,” he said.

Bitcoin might be clever but is still part of the regulated world under Australian law, despite its decentralised nature according to Rhys Bollen (MBA 2010) Director of Policy at NSW Fair Trading.

“If you’re using blockchain (the technology that underpins bitcoin) to provide a financial service or payment system, you need a financial licence. If you’re transacting in Australia, you’ll need to work out your tax situation, if you’re selling an Internet of Things (IoT) device, it will have to be fit for purpose under consumer law, and if you’re using bitcoin to buy from a shop, it still has the same responsibilities and obligations that all retailers have.”

Associate Professor Kwanghui Lim, who moderated the panel of industry experts says the concept of bitcoin and blockchain can be explained by the humble block of chocolate.

“A block of data is added to a chain of previous data blocks every time a bitcoin transaction takes place. It’s then verified when a consensus of ‘miners’ or computers, distributed all over world, get the same result after decrypting the data – a bit like Willy Wonka’s Oompa Loompa’s taste-testing blocks of chocolate on the production line to make sure the ingredients and flavour are right,” said Professor Lim.

Despite the sweet analogy, Nicholas Groves Executive Manager of Group Strategy at ANZ said the bank is not interested in bitcoin, especially while it remained an unregulated currency by its very nature. But blockchain, the technology behind it was another matter.

“While bitcoin is an incredibly clever idea, and incredibly well designed, it’s not for banks” he said.

“But we’re looking at how to adapt blockchain for our purposes. It will have a massive impact on banks, but all the action will be at the back-end, around how we share data with each other, which should help reduce fees and get things done faster.”

Katherine Robins, Principal Security Expert said Telstra is also a big blockchain fan. She has been adapting the technology to make Internet of Things (IoT) devices unhackable, with major implications for home security, medical devices and remote controlled cars, and potentially placing the telco as a first adopter in its industry.

“Blockchain uses kick-ass smart mathematics that can fix many of the gaps in existing security technology,” she said. “Small IoT devices don’t have the computing power to handle firewalls and software to prevent intrusions, but blockchain is very efficient. It can be used to protect IoT devices, payment systems, connected cars, even tracking beef from the farm to the table, using sensors.”